On the Road to Detroit’s Big PileupIf General Motors were any other company, it would probably be dead by now. In the summer of 2008, nearly a year before G.M. filed for bankruptcy, its executives were growing desperate. Rick Wagoner, its chief executive, secretly proposed a merger with Ford, while Bill Ford courted the future president, Barack Obama, in an attempt to safeguard his company. This article is adapted from “Once Upon a Car: The Fall and Resurrection of America’s Big Three Automakers — G.M., Ford and Chrysler” by Bill Vlasic, the Detroit bureau chief of The New York Times. The book, to be published Tuesday by William Morrow, reveals new details of the chaos at the Big Three. Conversations recounted in the book were based on more than 100 interviews.

Bill Ford wasn’t sure he’d heard right. Mr. Wagoner, the chairman and chief executive of General Motors, wanted to talk about a merger between Ford and G.M.?

He did. Mr. Wagoner and his operating chief, Fritz Henderson, would come by to talk.

Mr. Ford was stunned. He knew G.M. was desperate. But even now, in July 2008, he had no idea it was this desperate. And he couldn’t snub Rick Wagoner. Sure, Mr. Ford said. Come on over, and bring Fritz.

The idea had been the subject of theoretical debate for years. What if G.M. and Ford joined forces? Even in their shrunken state, they would have a combined 38 percent share of the United States market, and a huge international presence. All that purchasing power, manufacturing muscle and technical skill under one roof. Thousands of overlapping jobs could be eliminated. Painful as that might be, it could save billions. Chrysler? Forget it. Instead of a Big Three, there would be a Big One.

But could it even be done? G.M. and Ford had competed head-on for decades. This was not just a rivalry. This was opposite sides of town, you-stay-on-yours-and-I’ll-stay-on-mine. So, as a practical matter, a merger had never been seriously considered — until now.

Bill Ford didn’t like the sound of it. G.M. must be in serious trouble if its executives were coming to Ford for help or answers. The idea of a merger nauseated him. The U.A.W. would go nuts.

Mr. Ford spoke with his C.E.O., Alan R. Mulally, and they agreed that they had to talk to G.M., if only to find out what was going on. Mr. Wagoner’s approach was out of character. Maybe G.M. was in even worse shape than it was letting on.

Mr. Wagoner began. G.M. and Ford should merge, he said. The synergies would be phenomenal. Savings would be huge. The possibilities were endless.

Bill Ford was shocked. G.M. was serious. Who, he asked, would run this new company? As bad as Ford’s stock price was, Ford still had a higher market value than G.M.

Mr. Wagoner noted that G.M. was bigger in terms of sales. So, by all rights, it should probably be in charge. But maybe they could share management, or discuss it later, he suggested.

Mr. Mulally mostly listened. He wanted to know more about G.M.’s true state. He surely didn’t want any part of any merger. As far as he was concerned, G.M. was a roaring five-alarm fire. Why, he asked, was it coming to Ford now?

Mr. Wagoner and Mr. Henderson explained that G.M. was running low on cash and was having trouble borrowing money. By merging with Ford, it could go back to Wall Street.

So that’s what this is about. G.M. is going broke, Bill Ford realized. Ford had $30 billion in the bank, and that’s what G.M. really wanted. It wasn’t about Ford at all. It was about saving G.M. Mr. Ford didn’t need to hear any more. “No thanks,” he said. “This would never work out. “

Mr. Henderson jumped in, reiterating how good a marriage could be. “Don and I did a lot of work on this earlier,” he said. “I know G.M. inside and out, and Don knows Ford inside and out. Between the two of us we could figure it out pretty quickly.”

Mr. Leclair kept his mouth shut. Mr. Ford was doing the talking.

“No,” Mr. Ford said. “No, thanks.”

Mr. Wagoner understood. This wasn’t happening. “Well if you don’t do it with us,” he said, “we’re going to look elsewhere.” With that, the G.M. execs left.

At first, Mr. Ford was angry. G.M. could be so arrogant. But the overture was disturbing. If G.M. went bankrupt, a big part of the automotive supply chain could collapse. That would hurt the entire industry, including Ford. Bill Ford respected G.M.’s power and mass as no one else at Ford could. After all, he is a great-grandson of Henry Ford.

“I grew up in this town, and G.M. was the giant,” he later recalled. “That was just the reality of life for me from childhood.”

Mr. Mulally was amazed at G.M.’s desperation. From the day he came to Ford, he wanted to beat G.M., and to beat it badly. So if G.M. was going belly-up or merging with someone, he wanted to know. But Ford was on its own road, and he wasn’t turning over the wheel to Rick Wagoner or anyone else.

A FEW weeks before the G.M.-Ford meeting, Rick Wagoner assembled his senior executives at G.M.’s base in the Renaissance Center downtown for an announcement: G.M. was not going under — not yet.

“We are highly confident that we have ample liquidity through 2009,” he told reporters.

But could G.M. really survive for 18 months, given that it was burning through more than $1 billion a month?

Mr. Wagoner said G.M. would raise a $15 billion “cushion,” primarily by cutting thousands of salaried jobs, suspending its stock dividend, freezing wages, canceling executive bonuses and eliminating health care coverage for white-collar retirees over 65. On top of that, it would whack 300,000 more units of truck production, cut marketing costs (including dropping its giant Nascar and professional golf sponsorships), reduce spending on new products by 20 percent and delay its first big payment into the U.A.W. health care trust.

All of that would save about $10 billion, Mr. Wagoner said. After that, G.M. hoped to raise $5 billion by selling everything it could — real estate and the rest of its G.M.A.C. finance unit, as well as its Hummer brand and maybe others. Finally, it would borrow whatever it could on Wall Street, using assets in the United States and abroad as collateral.

It sounded as if G.M. was burning the furniture so it wouldn’t freeze to death. Bob Lutz, G.M.’s vice chairman, swore that the company would not compromise on the quality of its new models. But this was the first time it had decided to cut capital spending this much since the recession of the early 1990s.

Mr. Wagoner looked grim. He wore a gray suit, a yellow-striped tie and a long face, the corners of his mouth frozen in a frown. As he sat with his hands folded in front of the bright blue G.M. logo, he appeared to be trying to convince the reporters of something he had a hard time believing himself.

“Our plan is not a plan to survive,” he said flatly. “It is a plan to win.”

Questions were taken, but not really answered. Before the press conference ended, Moody’s Investors Service had downgraded G.M.’s credit rating deeper into junk status.

Afterward, when Mr. Henderson made the first calls to big banks in New York, it was as if no one even wanted to answer the phone. Asking investment banks to raise even a few billion dollars was a joke. He swallowed hard. “It was bad,” he later recalled. “Things just kept getting worse and worse and worse.”

G.M. needed something to open Wall Street’s spigots. That something, he told Mr. Wagoner, was a merger with Ford.

To his surprise, Mr. Wagoner agreed.

AFTER Ford rejected G.M.’s proposal, Mr. Henderson felt as if someone had popped his balloon. So much for the event that would convince Wall Street to lend to G.M. “That would have been the catalyst,” he would recall later. “You could actually use it to raise capital because the amount of synergies would be massive. Massive!”

Now he felt a growing sense of dread. He had been counting on Ford to be a lifeline. At this point, he knew G.M.’s financial status better than anyone, even Mr. Wagoner. He couldn’t blame Ford for slamming the door. His idea might have worked, he said later. “But sitting in their shoes, I could understand why they didn’t want to do it,” he said. “It wasn’t a simple call for them.”

Mr. Lutz was disappointed to hear how the Ford meeting had gone. To him, a merger would prove once and for all that an American company could whip Toyota, or anyone else. “It could be one large, enormously powerful global automobile company,” he had argued. “You could shut one proving ground, one finance department, one tax department, a bunch of plants, get rid of a lot of engineering. We could get rid of the fixed costs even before the acquisition.”

Mr. Wagoner didn’t even want to talk about it. He had tried and failed. Move on, he figured. It was another example of G.M.’s dysfunction at the top. There was something missing among Mr. Wagoner, Mr. Lutz and Mr. Henderson, some chemistry or cover-my-back mentality. They worked together, but not “together,” as the Ford guys did.

Nobody outside the tight inner circles at G.M. and Ford knew of the secret meeting. To much of the world, the two companies were joined at the hip, Detroit’s version of Dumb and Dumber. The public and cable TV’s talking heads were no longer distinguishing among the Big Three. It was everybody’s turn in the barrel.

That was driven home with the financial results for the 2008 spring quarter: an $8.7 billion loss at Ford, the worst quarter in its 105-year history, and a $15.5 billion loss at G.M., its third worst in a century. The numbers were staggering. G.M.’s revenue in North America had fallen $10 billion — a breathtaking 33 percent — from the year-earlier quarter. Ford took an $8 billion charge just to write down assets. The whole United States car market had imploded.

Yet G.M.’s board seemed to be in denial. The lead director, George Fisher, jumped to the company’s defense. “I’m reading too much stuff in the papers these days that is wrong,” Mr. Fisher grumbled in an interview. “It’s a distraction to the board and a distraction to management.” Was G.M. headed for bankruptcy? “The answer is no, absolutely not,” he said.

His optimism seemed remarkable. Mr. Wagoner and Mr. Henderson had just hurled a Hail Mary pass in Ford’s direction. Sales were atrocious and getting worse. Cash reserves were dwindling, and more expenses were coming in. Delphi, the big auto parts maker that had been spun off from G.M., was trying to find a private-equity buyer to emerge from bankruptcy. And it looked as if G.M. would be on the hook for another $3 billion to $4 billion to cover pension obligations of Delphi workers.

No happy talk was coming from Ford. Mr. Mulally, in daily sessions with senior executives, kept raising the volume. “What does a sustainable Ford look like, gentlemen?” he asked at one point. “Why are we in business? We are in business to create value. And we can’t create value if we go out of business.”

Excuses were unacceptable. “Why can’t we make money on small cars?” he asked. “Do you think Toyota can’t make money on small cars?”

On the day Ford reported its huge loss, it rolled out the next phase of Mr. Mulally’s transformation plan — converting three truck plants in Michigan, Kentucky and Mexico to small-car production, ramping up the output of four-cylinder engines and introducing a new wrinkle in “EcoBoost,” an engine technology that simultaneously increased power and fuel economy. Industry analysts were floored that Ford was pouring so much money into capital improvements under such dire circumstances. But Mr. Mulally seemed impervious to the sense of panic building in Detroit.

ON Aug. 4, as Mr. Mulally huddled with his team, Bill Ford was en route to Lansing to meet Barack Obama, then running for president. The one-on-one had been arranged by Gov. Jennifer Granholm of Michigan, a personal friend of Mr. Ford. Bill Ford wanted to get to know this young, environmentally minded candidate. The election was three months away, and Mr. Obama looked like a winner.

Much of what was happening to the American auto industry had political overtones. Ford was aware that G.M. was planning to go to Washington to lobby for aid. Specifically, Mr. Wagoner wanted some of the $25 billion in Department of Energy loans authorized by Congress the previous year, when lawmakers passed new fuel-economy standards. The loans were intended as seed money for technology to meet the tougher guidelines. But the $25 billion wasn’t in the budget yet, and G.M. was taking no chances. It needed that money — and not just for greener cars.

Mr. Ford had a growing sense that whatever went down in Detroit, the federal government would be intimately involved. And he wanted to make a personal connection with the man who could be the next president.

Mr. Obama had a huge crowd for his speech at Michigan State University. Cheers came in waves when he promised to help Michigan out of its woes.

“I know how much the auto industry and the autoworkers of this state have struggled,” he said. “But I also know where I want the fuel-efficient cars of tomorrow to be built — not in Japan, not in China, but right here in the United States of America. Right here in the state of Michigan!”

Afterward, he and Mr. Ford met alone. Mr. Obama had been forthright on the campaign trail about Detroit’s past, its dependence on gas-guzzling trucks and its reluctance to change. He had echoed those points in his speech, speaking of ending America’s dependence on foreign oil.

“We desperately need a new energy policy in this country,” he told Mr. Ford. “And I would like the domestic auto industry to be part of the solution, not part of the problem.”

Mr. Ford had a ready reply: “We’d love to work with your administration. I passionately believe that Ford can and should be part of the solution.”

Then he went through Ford’s transformation: smaller cars, cleaner engines, electric vehicles in development. “The vision I have is for us to be a global, green, high-tech company,” he said. “And that’s not just a vision.”

The two hit it off and then got technical — how to build batteries for electric cars, create an infrastructure of charging stations, target tax credits to shift consumers into super-efficient vehicles. When it was over, they shook hands like new friends. Mr. Ford felt great. Everything Mr. Obama wanted, he wanted, too. “I think he’s exactly in line,” Mr. Ford said after the meeting, “with where society wants us to go.”

GREEN cars were also very much on Mr. Wagoner’s mind. In late summer 2008, he told Mr. Lutz that the single biggest product responsibility on his plate was to deliver a working version of the Chevrolet Volt plug-in hybrid by Sept. 16 — the day of G.M.’s 100th birthday celebration. “Bob, we need it then,” Mr. Wagoner said.

Mr. Wagoner was gearing up for the ultimate sales job: to persuade Washington to help G.M. The presidential campaign was about to kick into overdrive. The Bush administration was already swamped with Wall Street’s crisis, and Congress was in its re-election frenzy. If G.M. was to win over Capitol Hill and the White House, it needed a powerful message. It couldn’t come limping in, begging. It had to represent progress, innovation, a bright future.

That’s where the Volt came in. It was the one car G.M. had that nobody else had, a blend of electric power and convenience. When the battery ran down, a little motor kicked in and kept it going. What could be smarter?

Mr. Lutz had been riding the Volt team hard. For once, he could stick it to Toyota. But he wasn’t sure about that September timetable. The Volt wouldn’t even go on sale for another two years. Was it really necessary to have it ready for the G.M. birthday party?

Yes, Mr. Wagoner told him. G.M. needed that car.

•

G.M. got the Volt, but it wasn’t enough. By the time the first one rolled off the line on Nov. 30, 2010, Mr. Wagoner had been forced out by the Obama administration as part of a $50 billion bailout.

The Treasury Department dramatically boosted its estimate of losses from its $85 billion auto industry bailout by more than $9 billion in the face of General Motors Co.'s steep stock decline.

In its monthly report to Congress, the Treasury Department now says it expects to lose $23.6 billion, up from its previous estimate of $14.33 billion.

The Treasury now pegs the cost of the bailout of GM, Chrysler Group LLC and the auto finance companies at $79.6 billion. It no longer includes $5 billion it set aside to guarantee payments to auto suppliers in 2009.

The big increase is a reflection of the sharp decline in the value of GM's share price.

The current estimate of losses is based on GM's Sept. 30 closing price of $20.18, down one-third over the previous quarterly price.

GM's stock closed Monday at $22.99, up 2 percent. The government won't reassess the estimate of the costs until Dec. 30.

The government has recovered $23.2 billion of its $49.5 billion GM bailout, and cut its stake in the company from 61 percent to 26.5 percent. But it has been forced to put on hold the sale of its remaining 500 million shares of stock.

The new estimate also hikes the overall cost of the $700 billion Troubled Asset Relief Program costs to taxpayers. TARP is the emergency program approved by Congress in late 2008 at the height of the financial crisis.

In total, the government used $425 billion to bailout banks, insurance companies and automakers, and provided $45 billion in housing program assistance.

The government now expects to lose $57.33 billion, including the full cost of the housing program, up from $36.7 billion. The new estimate means the government doesn't believe it will make an overall profit on its bailouts.

Republican presidential candidates, including former Massachusetts Gov. Mitt Romney, have seized on the auto bailout losses estimates, as evidence that the Bush and Obama administrations "wasted" money.

Matt Anderson, a spokesman for the Treasury Department, said, "Both TARP and the auto industry rescue are still on track to cost a fraction of what was originally expected during the dark days of the financial crisis."

In 2009, the government initially forecast it would lose $44 billion on its auto industry bailout. It revised it down to $30 billion, and later to as low as $13.9 billion earlier this year.The administration and President Barack Obama have argued that any losses on the auto bailout were worth the hundreds of thousands of jobs saved.

"The investment paid off. The hundreds of thousands of jobs that have been saved made it worth it," he said at an appearance last month at GM's Orion Assembly plant. "I want to especially thank the people of Detroit for proving that, despite all the work that lies ahead, this is a city where a great American industry is coming back to life and the industries of tomorrow are taking root, and a city where people are dreaming up ways to prove all the skeptics wrong and write the next proud chapter in the Motor City's history."

The new bailout forecast also represents an increase in the government's forecast in its losses from its $17.2 billion bailout of Detroit-based auto and mortgage lender Ally Financial Inc. The government holds a 74 percent stake in Ally, which has been forced to put its planned initial public offering on hold because of market conditions.

GM has announced it is willing to give a full refund to customers who bought Volts and are worried they will burst into flames. My question is this: In these refunds, does GM or the car buyer intend to reimburse the taxpayer for the $7500 subsidy we kicked in?

Now, Volts appear to have a fire problem with their batteries. This time, the government is keeping things real quiet and, instead of exaggerating the safety issue, they are suppresing it

It now appears the fire hazard was first discovered back in June, when GM first heard about a fire in a Volt that occurred some three weeks after the vehicle had been crash tested.

Yet, almost five months went by before either GM or the US National Highway Traffic Safety Administration (NHTSA) told dealers and customers about the potential risks and urged them to drain the battery pack as soon as possible after an accident.

Part of the reason for delaying the disclosure was the “fragility of Volt sales” up until that point, according to Joan Claybrook, a former administrator at NHTSA.

Demagoguing a non-problem in the first case, covering up a real problem in the second. Guess which one has a union that supported Obama’s election and which does not. Guess which one Obama bought equity in with taxpayer money?

1. Japanese automakers like Toyota, Honda, and Nissan are responsible for more than 407,000 jobs in the U.S. The vast majority of employees are those working at Japanese auto dealerships in the U.S., but Japanese automakers employ 50,000 American workers at 29 American vehicle, engine and parts plants, and another 4,000 at 34 major R&D and design centers, reflecting $34 billion of investment in the U.S.

2. Japanese makers are producing most of the cars they sell in America in North America -- 68% altogether.

3. Exported vehicles from Japanese plants in the U.S. last year increased to more than 145,000, up from 94,000 in 2009. With a strong yen today, the trend will continue, and will be be supplemented by new exports of U.S.-built Toyotas to South Korea following the recent ratification of the free trade agreement.

Those are some of the facts highlighted by USAToday based on a Japanese Automobile Manufacturers Association report being released this week.

PARIS — The owner of Saab Automobile finally threw in the towel Monday, filing for bankruptcy after hopes of a life-saving investment from Chinese investors collapsed in the face of opposition from General Motors.

Saab and two subsidiaries filed with the District Court in Vanersborg, Sweden, according to Saab’s parent company, Swedish Automobile. The parent company said it “does not expect to realize any value from its shares in Saab Automobile,” and that it “will write off its interest in Saab Automobile completely.”

Viktor Muller, the Dutch entrepreneur who had previously been chief executive of the sports car maker, Spyker Cars, acquired Saab from G.M. in January 2010 for $74 million in cash and $326 million in preferred shares. But he was unable to obtain the financing he needed to modernize the Saab line-up and reinvigorate sales at a time of global financial turmoil.

The court said it had appointed two receivers who were responsible for either selling the company outright or breaking it up and selling it piecemeal. The proceeds would be used to repay Saab’s creditors.

In a last bid for survival, Saab had been trying in recent months to arrange an infusion of cash from Chinese investors, including Zhejiang Youngman Lotus Automobile.

But “G.M. said over the weekend ‘whatever happens, come hell or high water, we won’t support a deal with Youngman,”’ Mr. Muller said.

He said there remained a glimmer of hope for Saab, as there were still “parties out there that have expressed an interest.” But the automaker’s fate, he said, now rested in the hands of its receivers.

Mr. Muller’s efforts to keep Saab afloat became increasingly desperate after suppliers stopped extending credit in the spring, forcing production to halt.

With salaries unpaid, unions at Saab began legal proceedings in September that could have led to liquidation of the company. Mr. Muller responded by voluntarily seeking court protection from creditors, gaining time to seek funds.

Swedish Automobile said that Youngman, having considered G.M.’s position, “informed Saab Automobile that the funding to continue and complete the reorganization of Saab Automobile could not be concluded.”

“The board of Saab Automobile subsequently decided that the company, without further funding, will be insolvent, and that filing bankruptcy is in the best interests of its creditors,” it said.

James R. Cain, a G.M. spokesman on financial communications in Detroit, described the bankruptcy filing Monday as “the end of a very long and difficult road” for Saab.

Mr. Cain disputed the idea that the U.S. company had been uncooperative, saying that G.M. had been “very clear and very consistent at the late stages, when the sale was proposed, because we felt it was in the best interest of everyone to understand what our concerns were, and we never wavered from that.”

Mr. Muller said “maybe three” companies remained interested in acquiring Saab, and that in some respects bankruptcy would make the company more attractive, as there were advantages to picking it up with a clean slate.

To make a go of it, he said, any buyer would have to obtain G.M.’s permission to make the Saab 93, 94 and 95 models. A buyer would also have to obtain permission from Saab AB, the now-unrelated aerospace company from which the automaker originated, to use the Saab brand.

In a statement, Stefan Lofven, head of the IF Metall union, called on the Swedish government to help the more than 3,000 Saab employees to find new jobs. He also urged Saab’s administrator to arrange a sale of the company quickly as a single unit.

Anette Hellgren, president of the Unionen white-collar local union in Trollhattan, said the carmaker’s employees remained in limbo because of the hope of another buyer emerging. “In this time, not knowing where to go, it’s very hard,” she said.

“I don’t think people blame Mr. Muller,” she said, noting that he was met with applause Monday when he went to address workers. “It was a pity that it didn’t work out. He made all his efforts to make it fly.”

Despite a famously loyal base of customers, Saab has reported a profit only once in the past two decades, and the fact that all of the global automakers have passed it over suggests a different fate ahead. Analysts expect the company, which began selling cars in 1949, to be broken up and sold in bits.

“There’s not much left to salvage,” Anders Trapp, an auto industry analyst at Skandinaviska Enskilda Banken in Stockholm, said, noting that Saab’s customer base had been dwindling as the problems grew. “Maybe the brand will continue in some form, but there’s not much left of it anymore.”

Fannie and Freddie entered into agreements accepting responsibility for misleading conduct discovered by the SEC, including:

1. As of June 30, 2008, Freddie had $244 billion in subprime loans, while investors were told it had only $6 billion in subprime exposure.

a. Freddie knew it was inadequately compensated for the risks it was taking. For example, it was taking on “subprime-like loans to help achieve [its] HUD goals” that were similar to private fixed-rate subprime, but the latter typically received “returns five to six times as great,” says the complaint.

b. Freddie had concerns about risk layering on loans with an LTV >90% and a FICO <680. (Yet, in Freddie’s disclosures it only noted risk layering concerns on loans with an LTV >90% and a FICO <620. This is a major difference since only 10 percent of its loans fell into the LTV >90% and a FICO <620 category, while nearly half fell into the LTV >90% and a FICO <680 one.)

2. As of June 30, 2008, Fannie had $641 billion in Alt-A loans (23 percent of its single-family loan guaranty portfolio), while investors were told it had less than half that amount ($306 billion, or 11 percent of its single-family loan guaranty portfolio).

3. The SEC complaint disclosed that Freddie had a coding system to track “subprime,” “other-wise subprime,” and “subprime-like” loans in its loan guaranty portfolio even as it denied having any significant subprime exposure.

These suits are important because they demonstrate that Fannie and Freddie “told the world their subprime exposure was substantially smaller than it really was … and mislead the market about the amount of risk on the companies’ books,” said Robert Khuzami, director of the SEC’s Enforcement Division.

The American auto industry—an industry that’s been the proud symbol of America’s manufacturing might for a century, an industry that helped to build our middle class—is once again on the rise.” That’s what President Barack Obama told assembled reporters and officials on November 18, 2010, the day after the new General Motors went public, with the largest IPO in American history.

GM sold 478 million common shares at $33 each, as well as a sizable chunk of preferred stock, raising $20.1 billion. While the IPO itself didn’t fully recover the federal government’s post-crash investment in GM (some $50 billion), a complete payoff seemed possible if the stock price rose enough, allowing the government to sell off its remaining stake at a better price. More important, said sober analysts, the stripped-down cost structure, looser union contracts, and management shake-up that preceded the IPO would allow GM to finally shed its decades-old legacy of divisive labor battles and mediocre, gas-­guzzling cars. (As I reported in these pages in 2010, I, too, saw inklings of hope.)

In November 2011, roughly a year later, Treasury revised its estimate of the government’s likely loss upward from $14.3 billion to $23.6 billion. As of this writing, GM’s stock was hovering around $20 a share. The company was beset by reports that the batteries in its splashy new hybrid-electric car had an unfortunate tendency to catch fire. Meanwhile, sales of the Chevy Cruze, which was supposed to be the Corolla-killer, were slipping after a strong initial showing.

This despite the fact that the company’s major Japanese competitors had been crippled by a tsunami and a nuclear meltdown. Business journalists often joke that some struggling firm could be saved only by “an act of God,” but in the case of GM’s stock price, even that hasn’t been enough.

Which has to raise the question: Was the company really saved? Did it finally have its “Come to Jesus” moment? Or was this just one more temporary detour in the company’s erratic amble toward perdition?

Historical precedent offers strong reasons to worry that GM might continue to backslide. Though casual glosses usually present the company’s history as a steady decline from the mighty 1960s to the debacle of 2008, in fact, there were quite a few moments when GM—and Detroit more generally—­appeared to have mended its ways. In 1994, during one of those moments, the reporter Paul Ingrassia published a book called Comeback: The Fall and Rise of the American Automobile Industry. In his 2010 book, Crash Course, he sounds older and wiser:

Throughout the 1980s and 1990s, every time the Big Three and the UAW returned to prosperity, they would succumb to hubris and lapse back into their old bad habits. It was like a Biblical cycle of repentance, reform, and going astray, again and again, as Detroit was repeatedly lured by the golden calves of corporate excess and union overreach.

The cycle reached its peak at the beginning of the new millennium, when the Big Three plunged from record profits to breathtaking losses in just five years. Over the past few decades, GM’s ability to resist change has proved almost uncanny. Why did the company wait so long and do so little—not once, but time and again—before finally falling into bankruptcy? And what, if anything, does that portend for its future? The questions go beyond GM, a company that’s hardly unique. Why did Blockbuster idly watch Netflix destroy its business? Why did Kodak let digital cameras drive a once-mighty industrial giant into penny-stock territory?

Ask Jeff Stibel, and he’ll tell you: because that’s what troubled companies do. Stibel, once an aspiring cognitive scientist in Brown’s graduate program, is now a serial entrepreneur who has led turnarounds at Web.com and Dun & Bradstreet Credibility Corp. “Once the human mind has set out to do something, or has gotten in the habit of doing something,” he told me, changing it is “very hard.” When you add group dynamics, it’s even harder. You don’t need to be a brain scientist, of course, to know that people resist change … and yet, even knowing that, you’d be surprised at how many firms keep driving toward inevitable disaster at top speed. GM’s record is very much the norm, not the exception.

Years ago, I listened to an earnings call with the head of a biotech firm that had sold off the income streams from all its patents, had nothing in its pipeline, and was rapidly burning through its cash. Nonetheless, the CEO kept talking about “our future” as if the company had one, other than liquidation. The equity analysts on the call didn’t seem fazed; apparently, that’s how companies in these situations usually behave. Management and workers seem oblivious to their failures. They wait too long before they act, and even when they do take action, it’s often inadequate.

This dynamic has given rise to a booming industry of turnaround specialists. They range from serial CEOs, like Stibel, who may walk in with an entire senior management team, to more-traditional management consultants. The industry is big enough to support considerable specialization—by company size, by industry, even by technique (cost cutter, brand builder). All seem to agree on one thing: most companies wait far too long to even recognize that they have a problem.

“Typically, a company doesn’t pull someone in until they’re on the brink of disaster,” says Thomas Kim, a Denver-­based turnaround specialist and an officer of the Turnaround Management Association. “They can’t make payroll, can’t make a loan payment, or can’t pay off their loan that’s coming due.” Obviously, if everyone waits until the checks get rubbery, the chances of avoiding the onrushing debacle are slim. But the flip side of the problem, says Michael Buenzow, a senior managing director in the corporate finance and restructuring practice at FTI Consulting, is that unless the crisis is acute, it’s hard to make anything happen. “If you’re brought in too early,” he says, “the employees in the organization won’t have that same sense of urgency.”

And yet, the argument that people continue down dead ends merely because they hate change seems inadequate. After all, people also hate losing their jobs and their money. As economists like to say, most people are risk-averse—it’s why unions accept wage cuts to keep pensions and health-care benefits, and why extended warranties are big business for Best Buy. Firms are full of these mostly risk-averse people. So why do they so commonly refuse to swerve?

One possibility is that firms don’t change because inertia is in their DNA—indeed, it’s a gene that once made many of them successful. In their 1989 book, Organizational Ecology, Michael Hannan and John Freeman argue that organizations are actually selected for inertia by their environment, and “rarely change their fundamental structural features.” Change is risky, after all, since it definitionally involves doing something that isn’t already working—and even product lines that have grown lackluster still have some customers. Firms that are prone to frequent large changes will probably have more opportunities to kill themselves off with bad choices than firms that resist big changes.

Moreover, the need for accountability and reliability in the modern economy selects against constant radical experimentation—people like knowing that their bank has cumbersome and invariable procedures for keeping track of deposits, for instance. Think of McDonald’s, where a core premise is that no matter where you go, the food and decor will be reliably, exactly the same. Or consider what happened to Coke after it tried to change the recipe of its iconic product, even though taste tests showed that most people actually liked the new version better. The larger and older the firm is, the heavier the selection for stability.

This is a powerfully attractive model for explaining why innovation so often seems to be driven by newcomers, rather than by profitable incumbents with huge R&D budgets. It also helps explain why so many companies in turnaround situations are gripped by inertia.

Blockbuster, for instance, promised—­and for a long time delivered—­reliability and ubiquity. Most customers were never more than a few minutes from a bright, clean, spacious store with an ample selection of the latest videos. But eventually that commitment to ubiquity and sameness killed the company. Blockbuster did see the possibilities of streaming, and explored some partnerships to exploit them, but was slow to roll out changes to its core business (as late as August 1999, only 1,000 Blockbuster stores even carried DVDs). Meanwhile, the commitment to ubiquity had caused the firm to take on a mountain of debt to lease all that pricey real estate. At some point, the company needed to leap into the unknown. But by the time its managers all held hands and took the plunge, the clock had run out. Blockbuster’s streaming service, launched in 2004, was far too little, and far, far too late.

Thomas Kim sums up the problem of corporate inflexibility pungently. “There are companies that perform reasonably well, and are completely dysfunctional.” But then the market changes. “In the companies that we see that hit the wall, that dysfunctional corporate culture really becomes a problem.”

Detroit labor relations have been a disaster ever since the early unionization drives, which were acrimonious and at times violent (at the infamous “Battle of the Overpass,” in 1937, a claque of Ford security guards attacked union agitators in front of an assembled press delegation). The result was a poison­ous relationship; in many ways, GM workers were more a part of the United Auto Workers than of GM. Eventually, the union became a sort of shadow management that had to sign off on every production decision the company made, if it had any effect at all on workers.

This system actually worked during the boom years. Because GM’s competitors were unionized too, the UAW’s power kept wages more or less equal across the Big Three, and helped contain cost competition that might have led to price wars, undercutting margins. The UAW, meanwhile, never had to worry that an excessively rich compensation package would put the Big Three in jeopardy.

Conditions changed, but the thinking didn’t. The union frequently behaved like a parasite that didn’t care whether it killed its host—calling strikes just as the company was trying to launch a pathbreaking small car; demanding that GM keep paying surplus workers nearly full salary indefinitely, even as market share declined. Rather than trying to change this dynamic, management caved, again and again—possibly, Ingrassia suggests, because any increase in wages would “trickle up,” as GM strove to maintain a pay differential between management and the hourly workers.

GM’s strategy, which focused first and foremost on sheer scale, also became ineffective over time, yet the company never moved substantially beyond it. Competitors built well-understood brands based on super-reliability, or style and performance, picking off customers year after year. But GM never settled on what it wanted to be, beyond gigantic.

Even a dysfunctional culture, once well established, is astonishingly efficient at reproducing itself. The UCLA sociologist Gabriel Rossman told me, “If new entrants assimilate to whatever is the majority at the time they enter, and if new entrants trickle in slowly, then the founding culture can persist over time, even if over the long run they make up a tiny minority.” This is why Americans speak English even though more of us are ethnically German or Yoruba. In linguistics and sociology, it’s known as the “founder effect.” In corporations, it’s known as “how we’ve always done things.”

Corporate culture, like any other culture, can change, of course. Edward Nieder­meyer, of TheTruthAboutCars.com, who has been a pretty tough critic of GM, thinks that this time may really be different. Finally, he says, “folks over there seem well aware of the ‘old bad habits’ and are trying extremely hard to avoid them.” (Although he is quick to point out that new bad habits could easily emerge.)

David Cole, of the Center for Auto­motive Research, agrees. For one thing, it’s clear that the UAW has come to under­stand that it needs to actively work to keep the auto industry healthy. With membership a quarter of what it used to be, the union is now in worse shape than the Big Three. So it is focused on providing a more flexible, better-skilled workforce. It has also allowed workers’ pay to be tied to the fate of GM.

“One of the things that the UAW never wanted,” says Cole, “was to have an equity position in the company, because they didn’t want the membership to think like investors. Now with the bonus scheme, they’ve essentially got an equity position.”

But then, some questions linger … the scattered complaints that the company is “channel stuffing” (upping its reported sales by getting dealers to take cars they don’t want), the continued reliance on incentives like zero percent financing, and of course, those exploding batteries. Unfortunately, corporate culture is a sort of black box; from the outside, you can’t see what’s going on. You have to wait to see what emerges.

What we can say is that this time, we’re actually going to find out. GM has fixed basically every other problem that anyone could name: Instead of a $2,000-a-car cost disadvantage due in large part to legacy costs such as wages and retiree benefits, it now has a cost advantage. The eight marques that multi­plied the overhead and muddied the value propositions of its brands have been streamlined to four. The excess dealerships have been closed.

What’s left is culture. After everything, if GM begins losing market share again, we’ll know that it’s beyond saving. To paraphrase the old joke: “How many experts does it take to turn around a big company? Only one—but the company has to really want to change.”

Small Dead Animalspoints me to this article at the February 15, 2012 Canadian Financial Post concerning the Canadian government's bailout of GM and Chrysler. (I confess: I did not know that the Canadian and Ontario governments got roped into this idiocy as well as the U.S. government.) The author calculates that the jobs saved in Canada by the bailout were kind of expensive:

After subtracting the partial repayment made by both companies, the governments’ sale of some shares obtained via the bailout, and the present value of GM stock still held by the two governments, taxpayers are still out $810-million on the Chrysler bailout and $4.74-billion on the GM loan. That’s an estimated $5.5-billion loss, which will fluctuate only slightly, depending on the final GM share price when governments relinquish their remaining shares. On jobs, three years later, the current employee count in Canada is 10,000 at GM (down from 12,000 in early 2009) and 9,000 at Chrysler (down from 9,800 in 2009). Using present employee counts, that means taxpayers offered up a $90,000 subsidy per Chrysler employee and a $474,000 subsidy per GM employee. (The company-only estimates are fair calculations; in the absence of GM or Chrysler, lost spinoff jobs at auto-parts manufacturers and dealerships would have been at least partly restored by either the two post-bankruptcy companies or by other automotive companies.) As the author points out, what would have happened if both companies had gone bankrupt, and the employees had fallen into the Canadian safety net? How many years would it have taken for Chrysler's Canadian workers to have been found new jobs? Ditto for GM's Canadian workers? (Especially because Canada, unlike the U.S., is doing okay on job creation.) You could argue about whether those Chrysler workers would have been out of work long enough to consume $90,000 worth of unemployment and government assistance on health insurance. But the GM workers? Even if you threw $50,000 a year into those workers (which sounds generous), it would have taken almost ten years to burn through that subsidy--by the end of which, nearly all of these workers would have found new jobs, reached retirement age, or died.

If the government spends tens of billions of dollars to save tens of thousands of jobs, it means that they are spending a million dollars per job saved. It would be cheaper to just write a $100,000 severance check to each employee, and let them look for new employment.